Business Change Analysis

A technique used to integrate all change activities into a total "business sequence change" program. All aspects of managerial, operational, social and technological change must be driven by the needs of the business (enterprise). All changes are identified and prioritized for proper sequencing to maximize the benefit stream vis-a-vis constraints.

Review all of the available information and summarize, using a business change analysis summary worksheet similar to the one shown in the following example. Identify the potential benefit stream (see Benefit Estimation) and any constraints (see Cost Estimation and Risk Analysis). Identify additional actions as required. Summarize the results. Using a formal payback schema (see Cost-Benefit Analysis), identify target sequences of change for each of the change initiatives. Determine change dependencies and associated risks. Re-sequence the changes driven by these business considerations. Draft a preliminary schedule or timeline for the changes, based on a determination of resources required and available. (Note: The entire scope of the change program may not be possible given constraints of resources and/or the constraints of running the existing business activities.)

Document rationale of recommended sequence. Present to key stakeholders and obtain final priority (see Forced Ranking and/or Force Choice Paired Comparison). Update the business change analysis summary worksheet (see example), and develop detailed transition plans based on the approved sequence of business change. Changes can be grouped into meaningful projects. These change projects should be documented, according to project management standards (see Project Management and Transition Planning).

The following is an exerpt from The Helix Methodology(c). Change Analysis is an integral part of the BPI requirements discovery module of Helix and as such must be taken in the context of that module.

Overview of the Change Analysis Model (CA)

The first model to be developed or updated in a work session is the change analysis model. The change analysis (CA) is a tabular model that contrasts existing situations (situations needing improvement) with preliminary goals (solutions that constitute an acceptable improvement). The CA is developed interactively with the knowledge-worker group, using a flip chart to record the situations and goals. It is very important that this model be done first. The CA sets the stage for achieving the catharsis and revelation needed to release creativity in the work session - see appendix-Factor 7 – The Principle of Catharsis and Revelation - the Helix Factor. About 45 minutes of the 2½ hours allocated for the work session is used to develop the CA.

During the development of the CA, the facilitator takes on the role of paraphraser, clarifier and recorder. As each situation is expressed by participants of the work session, the facilitator paraphrases the situation and writes it on the flip chart. This act of feeding back the situation, getting acknowledgment that understanding took place and writing it down completes a communication loop that is essential to the CA process. This communication loop - figure 6-1 and all figures can be seen at the end of the text. This send-paraphrase-acknowledge process ensures that the knowledge workers feel they are heard as well as understood. Paraphrasing and committing that paraphrased statement to paper also has a psychological impact on the sender. The sender and the group become committed to the statement as it takes printed form. Situations and goals tend to be more honest as people realize that the information is being recorded formally and will be shared.

Once the paraphrased situation has been written down, the facilitator opens the situation for discussion among the group. Here the facilitator helps the group determine the level of consensus that collectively exists regarding the situation. Typically, some dialogue and clarification will go on for a few minutes. During this time, the facilitator adds supporting and clarifying information below the original situation on the flip chart.

Once this process has finished, the facilitator begins the process of clarifying vague aspects of the situation with measurable support. The facilitator will read the situation aloud to the group and underline adjectives and phrases like “too fast, too slow, too much, etc.” The facilitator will then go through each of the underlined items and ask the group to provide clarification of what they perceive to be a measurement of that item.

Case Study Example

During the first JMI work session on the Sales on Account VADS, the first existing situation reads:

It takes too long to process sales orders through credit.“Too long”

is not well defined in this statement. What is “too long” in one person’s opinion may be “too short” for someone else. Here the facilitator will query the group for a definition of “too long”. As the group discusses the definition of “too long”, the facilitator is listening for quantifiable definitions. As quantified definitions emerge, the facilitator moves towards the flip chart and writes them down. It is important for the facilitator to stand about four feet from the flip chart while group discussion takes place. When the facilitator wants the group to finalize their discussion on a topic, he or she can move toward the flip chart. Doing this a few times will create a subconscious cue for the participants to complete their discussion.

In the case study, the finished situation appear as:

It takes too long to process sales orders through credit. Too long = more than 45 minutes from the time the Credit Manager receives the order from the order desk until the time the order is released to the warehouse for shipping.

Now there is a definition of “too long”.

However, what is not known is why 45 minutes is “too long”. This leads to the next question. Here the facilitator is trying to develop a consensus of what makes 45 minutes bad and what would be good. The participants are now focusing on how taking longer than 45 minutes detracts value from some stakeholder group(s). Repeating the same filtered listening and communications loop process, the facilitator updates the current situation to read:

It takes too long to process sales orders through Credit. Too long = more than 45 minutes from the time the Credit Manager receives the order from the order desk until the time the order is released to the warehouse for shipping.

This is bad because orders received after 2 p.m. cannot be shipped until the next business day. This results in poor customer service and, sometimes, in lost orders.

The above statement represents a fairly complete situation. It states the situation in measurable terms and why it detracts value from a stakeholder group.

The next enhancement to the situation is to establish the frequency that it happens, the cost of each occurrence (if possible) and an explanation of why the situation happens. Again, the facilitator puts the questions to the group and helps facilitate an answer.

Opinions on frequency, cost and why, typically vary depending on which knowledge worker is talking. However, the “why” aspect of the situation should be answered only by the work group that performs the task. At JMI, this is the Credit department. A knowledge worker from the Credit department (Credit) should be part of the group. If not, then one should be added at this point. Since this situation deals directly with the actions of Credit, only members of that group can speak to it.

It is important for the facilitator to keep the group’s focus on the process and not on those who work in Credit. Frequently, the reasoning given behind why the situation happens can expand the discussion to include others. It is common for one department to assign blame for a situation to another department. Sometimes the situation is denied and dismissed out of hand. When this happens, it is up to the facilitator to redirect the group away from one another and on to the process. At JMI, the representative from Credit said the following:

“Of course, it takes over 45 minutes. I have to process over 150 sales orders a day. Each one requires me to look up the customer’s credit status, reduce his credit line by the value of the order and, in many cases, call the customer and work out terms. That assumes the order forms are completed correctly by the order desk, which isn’t too often. What do you expect-miracles?”

This defensive response is typical. Here, Credit has blamed the situation on volume and poor input from the order desk. Credit could be right or just trying to avoid embarrassment or accountability. In either case, the facilitator’s job is to maintain focus, defuse potential emotional outbreaks and direct everyone to the same side. The flip chart is very useful here because people tend to focus on the chart and not the people. Since the chart cannot fight back, it is hard to sustain an argument. In addition, the facilitator can focus on the objective aspects of Credit’s statement.

Two points emerged from the above:

First, Credit has revealed that there are over 150 orders that must be approved each day. Second, there is another situation that needs to be explored: the completeness of sales orders being sent from the order desk to Credit for approval.

The order volume can be verified quite easily. Examples of missing information can likewise be verified. However, neither is the point here. What is important is to complete the current situation statement and develop a preliminary goal that would resolve the situation to everyone’s satisfaction.

By now, it should be apparent that the group is in a cathartic phase of the situation-goal process -see appendix-Factor 7 - The Principle of Catharsis and Revelation. Based on Credit’s response, assume that the situation’s final form is as follows:

It takes too long to process sales orders through Credit. Too long = more than 45 minutes from the time the Credit Manager receives the order from the order desk until the time the order is released to the warehouse for shipping.

This is bad because it means that orders received after 2 p.m. cannot be shipped until the next business day. This results in poor customer service.

This occurs because of the volume of orders (greater than 150 a day) coupled with the number of steps required to review and approve credit and complete the order. Based on an average wage of $30 an hour and 45 minutes of processing time, the cost to approve a sales order is $22.50. Given a volume of 150 orders a day, it requires about 14 Credit staff members to keep up with the volume. Since there are only six Credit staff, there is substantial overtime and use of temporary help. At present, the daily cost for overtime and temporary staff is about $1,785. The average daily cost to process orders through credit with 14 staff members would be about $3,375 a day.

Now the statement is complete. The situation statement developed reflects:

What is happening

Why it happens

How much it costs

What makes it undesirable

Who is impacted (loses value) because of it happening

Notice that the statement is focused on sales orders being approved and not the individuals who work in Credit. The statement is “subject focused”. People and personalities are not part of the process. The facilitator can now shift the emphasis toward helping the group develop a preliminary goal for resolving the situation. The goal statement should always start with the phrase “The ability to…” In the case study, JMI is seeking a goal that will give it: The ability to process a work order through Credit in less than 45 minutes.

The question is how much under 45 minutes? Here, the facilitator turns the question back to the group. The facilitator wants to help the group determine what would be worth achieving. What would constitute “Good”? Is it 44 minutes, 30 minutes or 1 minute? Now the group is in the revelation, or creative mode. The facilitator is directing the focus to a “future state” statement that reflects the credit approval process in an ideal form. When completed, the statement must reflect the following:

What should happen?

When should it happen?

What changes so it can happen?

Why is it better than the way it is done now?

How much will it save?

Who will benefit (gain value)?

To achieve this, the facilitator must allow participants to do some active brainstorming. The group needs to explore some “what if” scenarios. To expedite the effort, the variables that can be manipulated need to be identified. In the example, these variables include:

The number of orders requiring credit approval

The steps being performed to approve credit

The number of people used to perform the approval process

The information needed to perform the approval process

The facilitator should ask the group to challenge each one of these variables. This can be done by asking questions like: “What if we changed the number of orders requiring credit approval? What would happen then?”. Alternatively, “What if we only approved credit on orders over a certain amount, how might that work?”

Here the goal is to encourage the group to explore possibilities and the implications each presents. As ideas begin to crystallize and the group moves toward a consensus, the facilitator returns to the flip chart and begins the process of paraphrasing and recording. At JMI, the following preliminary goal could be developed:

The ability to process work orders directly to the warehouse when the customer’s available credit line is greater than the order amount and the outstanding balance is current. This would require a change to our order processing system. Specifically, it would require the system to automatically check the order for credit-related data and route it to the appropriate location (Credit department or warehouse).

This would allow about 125 orders a day to be processed to the warehouse in less than 5 minutes, from the time the order was taken, saving about $3,700 a day (elimination of overtime and temporary help). This would also allow the 6 staff members in Credit to focus on orders with real credit issues and collections and position them to support more volume.

This will benefit our customers by allowing the company to ship merchandise quicker, thus improving service levels. This will also reduce the stress in the understaffed Credit department. The above illustrates a preliminary goal with far-reaching implications. It sets forth a goal that resolves the conflict between the order desk and the Credit department, while simultaneously streamlining the process, reducing costs and improving customer service levels.

This is typical of the quality of goal statements that are developed by knowledge workers during work sessions.

Sometimes, achieving the level of completeness reflected in the above example takes more than one work session. The facilitator should take each current situation and preliminary goal as far as the group can at any one time. However, by the end of the third work session, the statements should be as complete as the one above. The facilitator can expect to generate 8 to 12 situations and goals during a 45-minute period. Each will be at various levels of completeness. Each will require post work session diagnostic time to generate questions for the group during the next work session. As each situation/goal pair is completed the facilitator posts it to the wall. This allows it to be seen by all the participants and easily referenced throughout the work session.

Figure 6-2 illustrates the JMI situation/goal pair as it might appear after the first work session:

The change analysis provides the first point of buy-in to improving a VADS by the knowledge workers. By recognizing what is “BAD” about the current situation and by projecting themselves into what is “GOOD” about the preliminary goal, the knowledge workers begin developing the creative tension - see appendix-Factor 5 -The Principle of Context - and leverage needed to support successful change.

Notice that the statements are not as complete as in the full example. During the first session, capturing 8 to 12 statements at level of completeness illustrated in figure 6-2 represents a job well done. Since it is done in about 45 minutes, it is a substantial accomplishment. The key is to capture sufficient detail and insight to allow the process to continue smoothly. If the pace drags, post the developed situation/goal pairs on the wall and move on to the next model. It is more important to make a pass at all the models than to develop only an eloquent CA at this point.

The change analysis will be revisited later in the sections on diagnostic work sessions, at which time the process of taking the goal from the status of preliminary to realistic will be explored. Indexing of the models into a set of formal working papers will also be reviewed.

Review

About 45 minutes have elapsed in the first facilitation work session. The facilitator has captured 8 to 12 change analysis statements on flip chart paper and posted them on the wall for easy reference. Each current situation and preliminary goal has been tested for measurability and completeness.

The next step is to understand where the changes in the VADS process identified in the preliminary goal need to occur. To do this, the facilitator will work with the knowledge workers to develop two workflow models.

Change Analysis Diagnostics

Each change analysis item should be posted to the Change Analysis form. The corresponding workflow model references can be posted to the form at either this time or after the data has been transferred from the flip charts.

As each situation and goal are posted to the form, care should be taken to construct complete and meaningful sentences. Any abbreviations should be replaced with complete words.

Once the change analysis has been transferred to the form, the team should test the statements against the change analysis rules. The team should verify that each situation clearly states:

What happens?

Why does it happen?

How much does it cost?

What makes it undesirable?

Who is impacted -loses value- because of it happening?

When the situation falls short in providing this data, the team should prepare a question for the next work session. If the question will require some research to answer, the team will want to provide the knowledge workers with the question prior to the next work session. The same process is done for each preliminary goal. Each goal should be tested to ensure that it clearly states:

What should happen?

When it should happen?

What would have to change for it to happen?

Why it is better than the way it is done now?

How much it will save?

Who will benefit - gain value?

When the preliminary goal does not pass the diagnostic test, the team should formulate questions for the knowledge workers to research and answer.

Remember, that the questions developed should be written in a professional yet non conclusive or presumptive manner, the same way they were constructed during the project scope-setting work sessions with management. Case Study Example

The first item is CA-SOA-1 - Sales on Account Change Analysis 1. To test the current situation, simply apply each test to the statement as follows:

Test 1 - What happens? Each current situation must clearly state what is occurring in the process. This provides an important context for understanding how the situation relates to the VADS as a whole. Equally important is the need to state the “What is happening” portion of the statement in clear and measurable terms. This means defining any adjectives or vague phrases. Words and phrases like sometimes, too slow, rarely, too much, inefficient, etc., need to be defined by statements that can be measured.

Remember that one person’s "sometimes" could be another person's "frequently".

From the first Change Analysis statement, it can be seen that the length of time it takes to move an order through the Credit department is greater than 45 minutes. Remember that the “what” must not be vague. This means any adjectives or subjective phrases must be augmented with definitions that are measurable. In this case, “too long” is defined as taking more than 45 minutes. The statement passes test 1.

Test 2 - Why does it Happen? Once the “what” is clearly understood, the context of the current situation can be enhanced by including a sentence or two on “why” the situation happens. Understanding “why” helps pave the way toward developing ideas on how to improve the situation.

Why does it take more than 45 minutes for orders to be processed through the Credit department? The current situation statement does not address the question of “why”. During the facilitation work session, the Credit Manager felt that the number of steps needed to approve an order, coupled with the limited staff, was the cause of the bottleneck. The statement needs to be updated to reflect this “why” information. This might be stated as follows:

This occurs because of the volume of orders (greater than 150 a day), coupled with the number of steps that are taken to review and approve credit and complete the order.

Notice that the language is brief and in no way politically charged. Avoid including statements in the Change Analysis that might alienate or polarize individuals or work groups.

Test 3 - How much does it cost? Part of understanding the critical nature of a situation is to understand its cost. There are two types of cost. The first is the calculable cost based on the data provided. The second is the opportunity cost inherent in the current process. Opportunity costs cannot be easily calculated. They result by choosing to do something one way versus another. Once a choice is made, its cost may be more or less than a different way. For example, one might choose to buy a car with good gas mileage at the expense of comfort. What is the cost of that comfort? How might being more comfortable improve alertness and help avoid accidents? This is very difficult to calculate without extensive research.

In the case study, the cost of an order to be processed by the Credit department can be calculated by multiplying the cost per hour and the number of hours spent. Using an average hourly cost of $30 and 45 minutes for completion, each order cost about $22.50 to process through the Credit department. Another calculation can be made to determine the number of people needed to process orders though the Credit department each day. This calculation is derived by multiplying the time it takes to approve an order (45 minutes) and the number of orders per day (150). This provides the total minutes per day required to approve orders (6,750). Dividing the total minutes by 60 provides the total hours required to approve orders each day (112.5).

Finally, dividing the total hours by the number of hours a person works each day (8) provides the number of people it takes to approve orders each day (14.06). Therefore, it takes 14 to 15 staff people to support the credit approval process. This equates to about $3,360 to $3,600 a day.

The opportunity cost is represented by the lost business that might occur due to the time it takes to process orders relative to the competition. While this cost may be even larger than the labor cost, there is not sufficient data available to make a reliable calculation. The first cost should be included in statement 1 as follows: Based on an average wage of $30 and hour and 45 minutes of processing time, the cost to approve a sales order is $22.50.

Given a volume of 150 orders a day, it requires about 14 Credit staff to keep up with the volume. The average daily cost to process orders through credit is about $3,375 a day (22.50 X 150).

Again, the better the information about the current way of doing business results in a better context for understanding a current situation statement.

Test 4 - What makes it undesirable? Virtually anytime a person or group of people identify a desire to change, it is because they believe that their situation can be improved. Generally, when a person’s situation reflects his or her ideal state, change is rarely desired. The current situation on the Change Analysis represents a condition that the knowledge workers believe can be improved. By being listed on the Change Analysis, it is implied that each current situation is, in some way, undesirable. The key is to identify specifically what is undesirable about the situation from the knowledge workers’ point of view.

In the case study, there is an objective to ship orders within 24 hours of receipt. The delay in the credit approval process impacts this objective. The worst impact comes on orders received after 2 p.m. since this means that the opportunity is lost for shipping the order on the same day it was received. The second undesirable aspect of the situation is its cost. If the time to approve an order were reduced, then the cost would correspondingly be reduced. This would allow the Credit department to review more orders or service the current order volume with fewer staff. The current statement adequately addresses Test 4. This portion of the current situation could read as follows: Given the objective to ship orders within 24 hours of receipt, reducing the time required to process orders through the credit department supports this objective and improves customer service levels.

Test 5 - Who is impacted (loses value) because of it happening? Every current situation statement has some negative impact on one or more stakeholders. By its nature it represents an opportunity to improve the level of value provided to stakeholders. Again, while implied, it should be made specifically clear. This helps everyone understand how improving the current situation will help the company achieve better alignment between its VADS and stakeholder needs. It builds a shared awareness and perspective that focuses the organization in the right direction.

In the case study, two stakeholders are negatively impacted by the current situation. The first are the customers. They have to wait longer than is perceived necessary to receive the products ordered. The second are the owners. They appear to be paying more than they should in order to have an order processed through the Credit department. This portion of situation could be changed to read: Reducing the time it takes to approve orders will also reduce the cost of order processing thus providing value to JMI’s owners.

The first current situation can be updated to reflect the results of the above diagnostic effort. This new statement will reflect a more context rich and measurable situation. Based on the original statement and the above diagnostics, current situation 1 would read as follows: It takes too long to process sales orders through Credit.

Too Long = more than 45 minutes from the time the Credit Manager receives the order from the order desk until the time the order is released to the warehouse for shipping.

This is bad because it means that orders received after 2 p.m. cannot be shipped until the next business day. This results in poor customer service.

This occurs due to the volume of orders (greater than 150 a day) coupled with the number of steps that are taken to review and approve credit and complete the order. Based on an average wage of $30 and hour and 45 minutes of processing time, the cost to approve a sales order is $22.50. Given a volume of 150 orders a day, it requires about 14 Credit staff people to keep up with the volume. The average daily cost to process orders through Credit is about $3,375 a day.

Given the objective to ship orders within 24 hours of receipt, reducing the time required to process orders through the credit department supports this objective and improves customer service levels. Reducing the time it takes to approve orders will also reduce the cost of order processing thus providing value to JMI’s owners.

The only questions left unanswered in the above situation relate to how much customer service levels can be improved and how much cost saving can be achieved. The answers to these questions will depend on the preliminary goal.

Current situations and preliminary goals should be diagnosed in their related pairs. This means that first the current situation is diagnosed and then the corresponding preliminary goal. Like the current situation, the preliminary goal is tested against a number of criteria. The criteria take the form of six tests that can be applied against the statement. The tests are as follows:

What should happen?

When it should happen?

What would have to change for it to happen?

Why it is better than the way it is done now?

How much it will save?

Who will benefit -gain value?

By applying each of these tests to the preliminary goal, the team can assure that the goal presents a complete concept.

The preliminary goal that corresponds to current situation 1 from the case study reads:

The ability to process work orders directly to the warehouse when the customer’s available credit line is greater than the order amount and their outstanding balance is current.

This would require a change to our order processing system.

Specifically, it would require the system to automatically check the order for credit-related data and route it to the appropriate location (Credit department or warehouse).

The following illustrates the diagnostic process for preliminary goal 1-SOA1.

Test 1 - What should happen? Each goal must clearly state what should happen in the new process. This part of the statement should begin with the phrase “The ability to….” This phrasing produces a future view of the process and helps contrast it from the way the process is currently done. The first sentence of the preliminary goal should be outcome focused and state what is to be achieved. In the above preliminary goal, the first sentence presents a vision of a future state. In this state, customers with the proper credit limit and outstanding accounts receivable balance status will have their orders automatically approved and directly printed in the warehouse by the order processing system (bypassing the Credit department).

There is no need to modify this portion of the preliminary goal.

Test 2 - When it should happen? Once the “what should happen” is established, the preliminary goal is tested for how well it communicates “when” the process should happen. Again, the goal is to provide a statement that has a rich context and is self-explanatory. The “when” will also help provide insights as to any stimulus trigger and response time requirements that might be critical to the new process.

In the case study, one might reasonably argue that the “when” is implied in the goal statement. However, the “when” is not explicitly expressed in that statement. When should the orders that clear the automatic credit check be transmitted to the warehouse? To avoid confusion, it is best to be explicit about when the event should occur. The goal should be updated to reflect its “when” aspect.

To do this, the team could add another sentence to the statement or modify the existing wording. The following would satisfy the “when” test:

Immediately upon the order desk completing the entry of the order, the system would “credit check” the order and electronically route it directly to the warehouse (approved) or the Credit department (denied) for the appropriate action. Testing and routing of an order should take less than one minute.

Notice that the above sentence clearly states the timing expectations related to the new process. For orders that pass the automatic “credit check”, the order would begin printing in the warehouse in less than a minute. This represents at least a 44-minute improvement over the current process.

Test 3 - What would have to change for it to happen? The next test focuses on the change that needs to occur in order to achieve the preliminary goal. This portion of the statement provides insight into any major modification to procedures, policies or systems that would need to take place in order to support the new process. This will help the team in sizing and costing the implementation effort later.

Change Analysis SOA1 identifies a requirement to change the order processing system to support the automatic credit checking process. Are there any other major changes needed? One change the team might identify at this point could relate to the idea of printing orders directly to the warehouse and Credit department. Currently, orders are manually forwarded to the warehouse. Under the new time and labor saving approach, orders would be electronically transmitted. This would require each location to have the proper printers and the electronic communications needed to support the new environment. If these details would not have a major impact on the implementation effort (time, logistics or money), then they would not need to be included in the goal statement. If this represented a major impact, then they should be referenced. An appropriate treatment of the these items could be accomplished by replacing the sentence referencing the system change with the following:

This would require a change to the order processing system to support the automatic credit checking process and related electronic transmission of orders to the warehouse and Credit department. In the above statement, the requirement has been referenced without elaboration.

The key is to identify important change requirements, not to define them.

Test 4 - Why it is better than the way it is done now? At this point, the preliminary goal describes “what” the goal is, “when” the process occurs and “what” the change requirements are. So what makes this way of doing things better than the current approach? This is what the team will test next. It is important to make this distinction in every preliminary goal. What may be intuitively obvious to some may be “clear as mud” to others.

The case study statement does not state why the preliminary goal is better than the current situation. So, what is better about it? To answer this, the team needs to review the current situation and project objectives. The current situation identifies what was bad about it. The preliminary goal must resolve what is “bad” about the current credit approval process. Additionally, the goal may support project objectives.

The current situation contains the following:

This is bad because it means that orders received after 2 p.m. cannot be shipped until the next business day. This results in poor customer service.

Given the objective to ship orders within 24 hours of receipt, reducing the time required to process orders through credit supports this objective and improves customer service levels. Reducing the time it takes to approve orders will also reduce the cost of order processing, thus providing value to JMI’s owners.

The above statement clearly conveys why the current credit approval process is bad. The new process would eliminate delays for orders passing the credit check. The immediate printing of orders in the warehouse would help support the project objective by reducing the time it takes to process an order from the order desk through shipping. The preliminary goal needs to be updated to reflect this.

The following would be appropriate:

This is good because it reduces the overall order processing time by at least 44 minutes for each order that passes the automatic credit check, and it directly supports the project objective to ship orders within 24 hours of receipt.

Making these types of direct correlation between goals and project objectives will help management and the knowledge workers understand why a particular change has merit.

Test 5 - How much it will save? Improving processes usually has associated savings. These savings typically take the form of cost reductions, increases in revenues, or both. The best way to express savings is in terms of its relationship to the related cost. This can be expressed best by what is known as ROI (return on investment). A simple form of ROI is calculated by dividing the savings by the cost to achieve it. If the savings will span multiple years, then the result would need to be divided by those years to arrive at an annual return. The formula becomes more complex if the concept of “Net Present Value” is introduced. An example of a simple ROI calculation can be seen in a savings account. If a person deposits $750 in an account and receives $53 interest in one year, the ROI would be 53/750 or about 7.1 percent. Similarly, if an improvement to a process would cost $60,000 to implement and the resulting savings would be $35,000 a year for the next five years, then the ROI would be calculated as follows:

(35,000 x 5)/60,000 or 290 percent for the five-year period, or 58 percent a year.

The ROI provides management with a common measurement for evaluating alternative uses of capital and resources. Many companies have an ROI threshold. This means that for any investment to be considered it must provide a minimum ROI. Where possible, preliminary goals should state an estimated ROI. If one portion of the formula is not available, then what is known should be presented. Providing cost and/or savings information adds context to the goal and helps the reader evaluate its merit.

In the case study, the current situation stated that the average daily cost to process orders through the Credit department (ignoring the cost of temporary help) is currently $3,375 or about $22.50 per order. What is not known is the number of orders that would pass the automated credit check process presented in the preliminary goal. This information could be easily determined in a number of ways. Past orders could be sampled to determine what percent were “credit worthy” at the time of order. This percentage could be applied to the average orders processed per day to arrive at an estimate.

Another way to estimate the number of orders that would pass the automated credit check would be to track how many new orders would pass the test for the next few weeks. In either case, this task would be given back to the knowledge workers to perform. The task could be given before the second work session or at the work session. Once the data was known, it would be added to the preliminary goal statement. A good way to ensure that this data makes it to the statement is to create a proforma statement, leaving a blank line for the value to be inserted later.

Assuming the data is obtained, the question of the cost to achieve these savings is still unknown. It would be reasonable to assume that the changes to be made to the order processing system will cost something. What will be the cost to modify the system to perform the automated credit check? What will be the cost to set up electronic communications to the warehouse and the Credit department? How much will the added printers cost? What other costs are implied by the preliminary goal?

It is doubtful that this information can be known with any real precision during this phase of the project. However, rough order of magnitude (ROM) costs could probably be developed. When dealing with ROM costs, it is important to provide a range in which the cost will most likely fall. The associated ROI can be provided in a range that mirrors the high and low estimate of the cost. Since the major cost element in the preliminary goal is system oriented, the team could request that a knowledge worker from the MIS department join the core group to participate in the project. The MIS representative could be requested to develop a ROM for the cost of the changes identified, along with a margin of uncertainty, so that a range of costs could be developed. Again, the preliminary goal could be written to provide a space to “drop in” the values once known.

With the savings and related ROM cost, the ROI of this preliminary goal could be easily calculated. For the purposes of the case study, assume the following:

The average number of orders that would clear Credit under the proposed automated credit check process would be 137.

The cost to change the order processing system is estimated to be about $180,000 (30 percent margin of certainty).

The cost of a new printer for the warehouse and Credit department is about $2,000.

The cost to run new cable to the warehouse and Credit department is about $3,000.

Given the data, the annual savings created from the new process would be about $739,000 (137 orders per day X $22.50 an order X 240 workdays). The cost would range from $180,000 to $600,000 ($180,000 as a base and $180,000/30 percent as a maximum plus $5,000 for printers and cables). Accordingly, the first year ROI would range from 22 percent to 300 percent (Savings divided by 605,000 and 185,000 respectively). Clearly, this ROI would be impressive to any management group.

Based on the above data, this portion of the preliminary goal could read as follows:

It is estimated that approximately 91 percent (137 orders per day) of the orders received would clear this credit checking process. Based on the current cost of $22.50 per order to perform a credit check, this improvement would result in five year savings of over $3 million ($739,000 X 5 minus $605,000). The cost to modify the order processing system and to implement the new process is estimated between $185,000 and $605,000. The expected ROI in the first year should range from 22 percent to 300 percent depending on the actual implementation costs. This data will be summarized to an overall project ROI schedule and included in the final report to management.

Test 6 - Who will benefit (gain value)? The next diagnostic to be performed on the preliminary goal is to determine if the stakeholders who will gain value from the new process are explicitly identified. Again, it is often easy to infer a beneficiary, but it is safer to identify them explicitly and the related value they gain.

In the case study, the current situation identified the customer and the owners as the stakeholders who lost value because of the current credit approval process. It is reasonable to assume that these same stakeholders would gain value under the proposed change. The customers benefit because they would receive their orders sooner than they do now. The owners gain substantial value saving about $740,000 a year based on an investment of $605,000. Additionally, the Credit department gains value because it would be able to focus only on orders that need their specific talents.

This final part of the preliminary goal might read as follows: The above savings would benefit the company by providing a net savings of about $140,000 the first year and $740,000 a year thereafter. The customer would benefit from this change because they would receive delivery up to 24 hours sooner. With the reduced number of orders flowing to the Credit department, the department can focus its full attention on problem orders and avoid adding new staff in the future. (This is in line with the company’s objective to keep staffing levels at 7,500.)

Figure 7-6 provides an example of how SOA-1 would appear based on the above diagnostics. In turn, each Change Analysis item would be tested and updated. Take a moment to conduct the diagnostic tests on SOA-2 and SOA-3. Be sure to ask the following questions during the testing process.

SOA-2 Current Situation

What is the cost of the lost orders?

In addition to the cost, what is the impact on customer service levels?

How does this impact JMI’s ability to achieve its objectives?

SOA-2 Preliminary Goal

What changes would need to be made to the order processing system?

How would this affect the procedures of the order desk?

What will it cost to implement these changes?

What is the ROI on this change?

How will this change benefit JMI and its customers?

SOA-3 Current Situation

Why isn’t the customer’s credit limit updated at the time the order is taken?

How often are customers sold products that exceed their credit limits?

How much is this costing?

Besides the customer and JMI, what employee groups are impacted?

SOA-3 Preliminary Goal

What changes would need to take place in the order process to support the automated update to the customer’s credit limit?

How much would this change cost and what is the ROI?

How does this change support the JMI’s objectives?

What other stakeholders would benefit?

Review

The team has completed its diagnostics on the Change Analysis. For each Change Analysis situation and goal, the team conducted a series of specific tests. Because of those tests, the Change Analysis was improved for understanding and measurability.

As a team becomes familiar with the diagnostic criteria, the Change Analysis becomes more robust during the facilitation work sessions. In addition, the speed at which the diagnostics are performed improves. A typical Change Analysis item should only take about 10 to 20 minutes to diagnose and update. The update will be in either a complete or a proforma format. Remember: a proforma format is when the text leaves blank areas for insertion of specific values.

Expanding the Change Analysis

The next step in the diagnostic work session is to review the preliminary goals and project objectives for their ability to be achieved in actual practice. To do this feasibility analysis, each goal and objective needs to be tested in terms of the:

1. Uncontrollable variables and

2. Imposed limitations and constraints affecting their achievement.

Every goal and objective has a set of key variables that impact their feasibility. These variables fall into the following categories:

Controllable variables are those that the organization has domain over (i.e. procedures, working hours, priorities, etc.). Uncontrollable variables are those that the organization has little or no domain over (i.e. government regulations, weather, etc.).

In general, the achievement of a goal or objective is inversely proportional to the number of uncontrollable variables present. For each uncontrollable variable encountered, it is important to assess its associated risk factor and impact on the goal or objective for when it does not behave in the manner desired.

Imposed limitations and constraints are artificial boundaries that the organization has created for a given goal or objective. They differ from an uncontrollable variable in that they are negotiable. This means the organization could change its mind and set new boundaries for imposed factors if it so desired.

While there are many variables and factors that could be considered, the team is only interested in those that would influence the pursuit or the achievement of the project’s goals and objectives.

An example will help to illustrate this point.

Assume someone wants to take a trip from New York to Florida for a vacation of sun and fun. What are the key variables that come into play regarding this vacation? To understand the “KEY VARIABLES”, the expectations of those taking the vacation must be identified. Assume the vacationers have the following expectations:

1. Florida will be sunny and warm (about 80 degrees),

2. This will be a vacation (i.e. no work),

3. The trip down will take less than three hours and cost about $300 each,

4. The trip will last four days and start on April 5 and

5. The hotel will cost under $75 day.

Given these expectations, the following factors appear to be important:

1. Weather - Uncontrollable,

2. Type of trip - Controllable and an imposed limitation and constraint,

3. Travel time - Somewhat uncontrollable and may not represent an imposed limitation and constraint,

4. Cost - Controllable and an imposed limitation and constraint and

5. Length of stay - Controllable and an imposed limitation and constraint.

To what extent can the vacationer control the weather? Obviously, the answer is not at all. However, the probability that the whether will be sunny and warm in Florida in April is pretty good. So while the weather cannot be controlled, it can reasonably be predicted. If the vacationers were to assess the impact of weather on their vacation, they might consider the following questions:

1. What if rain is predicted for the week of April 5? Would the trip still be made?

2. What if the forecast is for sunny and warm and it rains anyway? Will the trip be cut short?

The risk of rain occurring all day long for four days in April is remote. However, it can happen. The vacationers need to assess the risk of rain relative to making the trip. The vacationers also need to create a plan for what to do if it does rain - stay there or return home.

To what extent can the vacationers decide to take work along on their vacation? Here, the amount of control they have is substantial. They can increase that control by not leaving a telephone number or address where they can be reached. The variable associated with not having to work on vacation is controllable and does not need more analysis. It represents an imposed limitation and constraint that does not pose an obstacle to the trip.

What about the time of travel and the associated cost of the trip? How much control does the vacationer have over the time it takes to go from New York to Florida or the related costs? Again, the predictability is high. But what can go wrong? What are the risks associated with this expectation not being met? If it takes more than three hours to get to Florida, will the vacationers still make the trip? Probably yes.

Although the flight could be delayed, it would not affect the decision to go. What about the cost? If the airfare is $800 and the hotel $100 a night, would the vacationers still go? What could happen to make the cost increase? How much control over that increase is there? What happens if the vacationers miss their flight? What is the probability of that happening, and what can be done to reduce that risk? Here, variables are both uncontrollable and imposed. If the cost goes up, the vacation may not be affordable. However, this cost constraint is an imposed limitation and not necessarily cast in stone. Controlling cost is certainly easier than controlling the weather.

These types of questions help the team to explore the “Gotchas” that could influence the pursuit or achievement of any particular goal or objective.

In summary, the following steps should be followed when assessing the controllable versus uncontrollable variables and the imposed limitations and constraints associated with any particular goal or objective:

1. Review the preliminary goal or project objective.

2. Identify the explicit and implicit expectations associated with the goal or objective.

3. Identify the variables that could negatively affect the pursuit or achievement of the goal or objective.

4. Assess the level of control that the organization has over those variables.

5. Identify if the variables are being imposed by the organization or are, in fact, uncontrollable in their nature.

6. For uncontrollable variables, identify their impact on success as well as the actions that would be taken if the variables’ behaviors were not in accordance with the organization’s expectations.

7. For imposed limitations and constraints, evaluate the latitude or flexibility the organization or knowledge workers have to change the boundaries being imposed.

Based on the results of the above seven items, determine if the goal or objective is realistic. If it is not realistic, determine how it should be changed to be realistic.

The process typically requires the team to brainstorm for each preliminary goal and project objective. When significant issues are raised, the team will need to review their analysis with the knowledge workers and/or management in order to seek a resolution. This would be done in subsequent facilitation work sessions.

At this point, the question might arise: “Why do this now? Why not do this at the same time the change analysis is done?”. The answer is this: it could be done either way. However, there is a better chance of understanding the implications of a goal or objective when it is done in context to the mapped workflows. Pursuing part 2 of the change analysis too soon can result in exploring far more variables than needed to assess the risk of failure related to achieving a particular goal or objective.

Case Study Example

he same process that was demonstrated in the above vacation example needs to be followed by the team for the four project objectives and three preliminary goals of the project.

Figure 8-1 provides a sample of the CA2 form used to record the results of this portion of the diagnostics process. The best approach is to do the diagnostic using a white board or flip chart and then post the result to the form. Brainstorming and forms do not necessarily mix. Therefore, the team is better off to work first in a more unstructured medium and, once satisfied with the result, post it to the form - figure 8-1) For the sake of brevity, only the first preliminary goal will be reviewed. The concepts and skills needed to complete part 2 of the change analysis can receive ample coverage by walking through a single item.

The first preliminary goal (CA-SOA1) states:

The ability to process work orders directly to the warehouse when the customer’s available credit line is greater than the order amount and their outstanding balance is current. This would require a change to our order processing system. Specifically, it would require the system to automatically check the order for credit-related data and route it to the appropriate location (Credit department or warehouse).

Part 2 of the change analysis can be completed by applying the following diagnostic process:

1. Review the preliminary goals and project objectives. Reading the statement aloud often improves group comprehension. As a group, be sure to discuss interpretations of the statement’s meaning. When in doubt, review the statement with the appropriate knowledge workers.

2. Identify the explicit and implicit expectations associated with the goal or objective.

Explicit expectations are those items that are clearly stated in the goal. They are identified by reviewing what the goal is achieving. What are the explicit expectations in the above goal statement? First is the ability to either process work orders to the warehouse (when the customer’s credit is good) or the Credit department (when the customer’s credit fails the automatic check).

Next is the expectation that the order processing system can be changed to perform automatic credit checks.

Last is the expectation that the warehouse can support a printer for printing the orders routed to it.

What, if any, are the implied expectations? These are expectations that are not specifically listed in the statement but are deducible with a little reasoning.

The team knows that the overall goal is to speed up the VADS cycle by being able to bypass the Credit department via an automated credit check process. Therefore, it would stand to reason that the new process would be faster than the old one. This means that a creditworthy order would need to get to the warehouse faster than if the order was routed through the Credit department. How much faster is the question yet to be answered. Looking at the lapsed-time area of phase A on the PWFL2, it is expected that the order will move from the order desk to the warehouse in about 5 minutes.

Identifying implied expectations require dialogue, introspection and a little detective work. It requires the team to consider the goal in the context of the VADS and what the underlying benefits to be achieved are. Typically, it is the failure to satisfy implied expectations that results in failure to achieve goals and satisfy expectations. 3. Identify the variables that could negatively affect the pursuit or achievement of the Goal or Objective.

Variables need to be evaluated both in terms of their potential impact on pursuing the goal as well as their impact on the goal of delivering what was planned. A variable is considered to have a negative impact on the pursuit of a goal if it could derail or hinder the implementation effort or impact goal achievement after implementation. Think of it this way. Two risks are present when someone jumps over a crevasse. The first risk relates to the effort, the jumping process. If the jump is too short, the person falls and the effort fails. The second risk relates to discovering that the other side of the crevasse does not provide the benefits expected (i.e. the operation was a success but the patient died). Each variable needs to be evaluated from both perspectives.

What are the risk variables associated with trying to automatically credit check an order, route and print it to either the warehouse or the Credit department within 5 minutes?

Here, the variables are feasibility, cost and time. By asking questions about these factors, the team can assess the amount of risk associated with trying to change the system to accommodate the proposed changes. A few questions that might be asked include the following:

1. Can the system be changed to perform this new function?

2. Can the cost of the change be accurately estimated?

3. How much will the change cost?

4. Is that cost worth the benefits to be derived (i.e. what is the ROI)?

5. How long will the change take to implement?

6. Can the warehouse support a printer?

7. What will it cost to put the printer in the warehouse?

Finally, what are the risk variables associated with implementing the change only to have it fall short of the desired goal? Here, the variables are efficiency, reliability and speed. The following types of questions can help the team determine the risks associated with post-implementation results:

1. Can this new process perform within the 5-minute expectation?

2. Will the new credit check process really be as reliable as the Credit department’s current credit check process?

3. Will the routing process be reliable?

Once these types of questions have been answered, the team will have a reasonably accurate assessment of the overall risks associated with a preliminary goal.

4. Assess the level of control that the organization has over those variables.

The team needs to assess the level of control the organization has over each of the variables identified (feasibility, cost, time, efficiency, reliability and speed). This is done by answering the aforementioned questions. Consider the first questions that relate to the feasibility, cost and the time needed to change the order processing system to perform automatic credit checks. How much control can the organization exert over assessing the technical feasibility of the change? Assuming the organization owns the systems and has access to the program source code, the answer is “virtually 100 percent”. What about the cost of the change? Here the control issue is a little fuzzier. While the organization can control the level of effort put into estimating the cost of the change, what level of control do they have over what the cost will actually be? History demonstrates that technology projects, like their construction counterparts, tend to cost more than original estimates. This would indicate that the organization can only hope that its estimates reflect reality. Therefore, the risk associated with controlling the cost of the change should be explored and communicated to management. Estimate ranges usually provide more latitude than fixed numbers. The best estimates are based on estimating each component of the effort separately and then adding an overhead factor for project management, administration and coordination. Time poses a similar challenge. How long will it take to effect the changes? The organization can influence the time aspect of the change based on how much resource it is willing to commit. However, it still takes nine months to have a baby, no matter how many midwives are around to help. Again, the best the organization can hope for is to develop time estimates that reflect the relative target for completing the effort.

What control does the organization have over the success of the goal, assuming the goal is feasible, properly funded, and given adequate time to be achieved? Can the speed issue be controlled? Can reliability be gu